prosperman - a lot of people saving for retirement trust their...

prosperman - a lot of people saving for retirement trust their money to pension funds (in particular) to look after it and make it grow for them. Many who have occupational pensions simply know the money that's deducted from their pay and usually matched or more by their employer, is invested on their behalf by someone in the company they work for (in what are usually 'money purchase' schemes these days) designed to provide a pension when they retire.

Then you have people with their own pension arrangements (they're called SIPPs in the UK - Self Invested Pension Plans). I don't know what they're called in Australia. People can put a range of assets into these plans but most take a cautious view and invest in unit trusts (or 'funds') managed by so called experts, employed by organisations like AXA, Barings, Schroeders, Old Mutual - there are thousands all over the world. Check out who owns them. There are any number of unit trusts on offer and any number of fund managers, all of whom have a common attribute - they all get paid way more than they're worth and they get indecent bonuses on top.

My personal view is that the performance of the funds under their management (the benefits of which accrue to pension investors) comes second to how much money they can generate for their owners (many of these are investment banks) via annual management fees - usually a small percentage of the total funds under management - plus transaction charges. The total of the two can end up being quite lucrative. I'm not saying these fund managers don't have investment expertise - they must have, because they have to make up to 5%pa just to stand still and most funds under management do grow in the long term.

There's another lucrative source of income for these fund managers,because they can charge a fee to lend shares in companies they hold in the funds under their management to people who want to borrow them for whatever reason (they are needed for all kinds of things the ordinary investor wouldn't understand) but one of the most popular reasons for people to borrow them is to go short with. The borrower is required to put up security for the loan and to pay the fee and a short agreement has to be prepared, but otherwise that's it. In some cases the fee is paid into the fund, but in most cases it is claimed by the fund manager on the premise it helps to keep management fees low and beneficial owners gain from this. As for the obvious disadvantage of there being no possible upside for beneficial owners from the loan of their shares lent to be shorted - before being returned to the fund manager to be tucked neatly back into place, only worth a lot less in the majority of cases, but never more as a result of their loan. Fund managers justify this by saying they invest for the long term and short term price fluctuations are of no concern to them. This of course is spherical objects.

I have asked every internet broker I have ever had dealings with if they ever lend shares and the same answer is give every time: "we never lend shares we hold as trustee in our nominee companies". It may be that I picked up the wrong information before I first invested in SGH, when 16% of the company's issued share capital was showing on the register as having been sold short. The most recent company accounts (that recorded quantities to fractions of 1%) showed funds/institutional holdings of 10% - so who lent the extra 6% if it wasn't internet brokers (a lot of these are owned by investment banks too). And the above assumes all institutional and funds holders lent all their shares in getting to the figure of 16%.

There's probably some small print somewhere saying you consent to all this. Everyone should write to brokers and fund managers saying you specifically forbid them from lending yours.

They'd then have to say: "it wasn't your shares we lent - it was someone else's". Transparency is needed but you're not going to get it. Why?

Governments can't lay their hands on private individuals capital while it remains in their ownership. Allow it to be taken by investment banks and hedge funds (some of which do get taxed on their profits where their operations are situate) and it's a different ball game. They can be taxed on profits - and their employees get taxed too - a lot at higher rates.

It's winner. Except for private investors. It will eventually empty the markets of cash, but more is being created all the time - why do you think you see so many new unit truss/funds with al those fancy names? blah blah special situations; blah blah recoveries; blah blah high yield surprises (they're low) fund.

Get my drift?